President Biden Says Americans Don't Need to Prepare for a Recession. Here's Why He's Wrong
- President Biden says a recession is unlikely, and that if it happens it will be minor.
- Many economists and business leaders have sounded the alarm bell on the economy in recent months.
- Paying down debt and building your emergency fund can help you weather any financial storm.
Building solid financial bases never did anyone any harm.
Recession warnings are coming in thick and fast from business leaders, economists, various international bodies, and more. But not everybody is sounding the alarm bell about a potential economic disaster. Indeed, President Joe Biden told CNN this week that he doesn't think a recession is inevitable.
"I don't think there will be a recession," the President said. "If there is, it will be a very slight recession." Moreover, when asked whether the American people should be preparing for a recession, Biden responded with an unequivocal "No." Here's why that's not a helpful answer.
There's no harm in preparing for a recession
President Biden might be correct -- we may not see a recession in 2023. But he's wrong to say we shouldn't prepare. Primarily because none of the things you might do to prepare for recession are bad things to do. Quite the contrary, all will stand you in good stead, whether or not we're about to hit an economic iceberg.
For example, having three to six months' worth of living expenses socked away in a savings account will cushion you against various unknowns. If we do enter a recession, that money will be useful in the event that, say, you lose your job. But if we don't, that money will be there in case of a medical or other financial crisis. Emergency funds are for life, not just a recession.
Another common way to prepare for a recession is to pay down high interest debt. Again, this is a sensible course of action, period. Carrying a balance on your credit card can be costly and lower your credit score. It erodes your financial foundations and makes it harder to build wealth in the long term. It isn't easy to become debt free. But if you can make a plan and take the first steps on that journey, you'll be better off in the long run.
Career wise, many people's work lives were upended by the COVID-19 pandemic in different ways. As such, there's nothing wrong with taking some time to think about what you want to do. If there are skills you can brush up on that will help you have a more fulfilling career, do so. Look for courses, communities, or books that might help. And if you neglected your professional network during the lockdowns, why not reconnect today? Not because of the potential for recession-related job losses, but because those contacts make our work lives more interesting.
To continue the iceberg metaphor, if you were on the Titanic, you'd want there to be lifeboats and safety equipment available regardless. If we do hit a recession, think of your emergency fund as a type of financial lifeboat. Having a stronger career base could help you find a new job more quickly or reduce the likelihood of being laid off in the first place. If the ship doesn't sink? So much the better. You'll have a solid savings base and may be better positioned in terms of your debt and career.
It's worth listening to economic warnings
Economic predictions are difficult, especially in the wake of what was an unprecedented situation in the form of the pandemic. It's about weighing a bunch of different indicators and attempting to work out the most likely scenario. We may or may not be about to enter a recession. It may or may not be serious if we do. The truth is that nobody knows for sure.
What we do know is that the job market is relatively strong right now. Plus, building up a solid emergency fund can be a big help when you're faced with an unexpected expense. Without it, you might have to take on debt or be forced to sell assets at a loss. Whether it's a recession, a medical crisis, or something nobody has yet predicted, President Biden is wrong. We all need to be prepared.
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